sale of primary home with rental

[Tracy Lee]

New (married) client sold primary home with rental suites inside of the primary home.  Their only other income is social security.  Schedule E shows deprecation of assets.  I put in Bulk Sale and attached all the assets to it.  Sold for $1,042,000.00 property basis with improvements and seller fees $509,478.00 with $500,000.00 primary home exclusion that would leave $33,022.00 gain.  ATX is only giving me $250,000.00 (why?) exclusion on Form 4797 and it is flowing over to the Form 8949 and Schedule D line 11 but showing they owe $35,245.00 in tax.  Other than information on the sale of principal residence I did not fill in any other data because it shows it's flowing from the Schedule E.  I did not Force 4797 section in the bulk sales because my understanding is that this would not be reported on Form 4797 because it was primary and rental home.  I'm clearly missing something because they shouldn't owe this much money, if any?  Help and guidance would be most appreciated! This is my first tax return with this kind of senerio.

[Tracy Lee]

Disregard.  I found the sale of primary Residence tab under the Bulk Disposition Setup and filled that out and it gave me my maximum exclusion.  I am confirming that this is reported on the Form 4797? They will owe some tax because of some rental income and depreciation recapture?

[DANRVAN]

On 10/2/2023 at 1:49 PM, Tracy Lee said:

client sold primary home with rental suites inside of the primary home.

If the nonresidential portion is within the residential dwelling unit, then the exclusion applies to the entire gain except for any depreciation that was allowed.

See reg 1.121-1(e) for details.